Download Greenland Economy 2016

The Economic Council
Aningaasaqarnermut Siunnersuisoqatigiit
Greenland Economy 2016
Economic outlook
Current economic policy
Education
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The Economic Council was set up by Naalakkersuisut (the Government of Greenland) in 2009, and this is the Council’s seventh
report.
The Economic Council is headed by a chairmanship of eight people. The chairmanship is composed of a chairman, a vice
chairman and four council members, all of whom are appointed by Naalakkersuisut. Since the last report, no changes in the
composition of the chairmanship has taken place.
In addition to the chairmanship, the Economic Council comprises members from interest organizations, the Naalakkersuisut
administration, and research institutions. Members representing organizations and research institutions are appointed by the
organizations concerned. The other members are appointed by Naalakkersuisut. The members of the Council can submit
comments on the content of this report, but the chairmanship has the sole responsibility for preparing the report and its final
content.
The secretariat function of the Council is carried out jointly by the Ministry of Finance and Danmarks Nationalbank (the Danish
central bank). The duties of the Economic Council are to carry out regular assessments of economic trends and of the
sustainability of Greenland’s fiscal policy.
The chairmanship comprises:
Chairman: Torben M. Andersen, PhD.
Professor in economics at Aarhus University and former chairman of the Taxes and Welfare Commission. From 2001 to 2003,
he was chief economic adviser of the Danish Economic Council, and he is still active in the Council as a specialist expert.
Vice Chairman: Ulla Lynge, Master of Science in Public Administration from Ilisimatusarfik
Managing Director of Sermersooq Business Council and has previously worked for the Greenland Home Rule, the Municipality
of Nuuk and the pension fund SISA.
Other members of the chairmanship:
Anders Møller Christensen, Master of Science in Economics. Former vice governor of Danmarks Nationalbank (the Danish
central bank). Was a member of the Consultative Committee for Greenland's Economy from 1988 to 2009.
Anders Blaabjerg is the Head of Statistics at Statistics Greenland and has an MSc in economics. He has formerly been
employed in the Ministry of Finances, the then Department of Economy.
Søren Bjerregaard, Master of Science in Economics, head of securities and balance of payments statistics with Danmarks
Nationalbank. He has previously been a member of the Consultative Committee for Greenland’s Economy.
Ida Helliesen, business economist, has considerable executive experience from the Norwegian trade and industry and from
directorships, including Norges Bank and "Petroleumsfondet".
Claire Armstrong, PhD in fisheries economics. She is a professor at the University of Tromsø and has extensive scientific
production.
Najaaraq Christiansen, Master of Science in Public Administration. Has worked at Statistics Greenland for a number of years
and is now a business controller at Tele Greenland.
Members of the Economic Council:
Brian Buus Pedersen, Director at Greenland Business Association (Grønlands Erhverv)
Jess G. Berthelsen, Chairman of SIK
Olga P. Berthelsen, chairman of PPK and appointed by IMAK, AK, PIP and PPK
Martin Kviesgaard, Director at Grønlandsbanken and appointed by the banks
Tine Pars, Rector of the University of Greenland
Lars Geraae, office manager at Statistics Greenland
Klaus Møller, acting director of KANUKOKA
Jørgen Isak Olsen, Permanent Secretary at the Ministry of Fisheries, Hunting and Agriculture
Jørn Skov Nielsen, Permanent Secretary at the Ministry of Industry, Labour and Trade
Nikolai Sten Christensen, Permanent Secretary at the Ministry of Finance.
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The final, edited report will be finished on September 15 2016.
© Published by the Economic Council, September 2016.
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Summary
Economic activity is progressing following a period with recession. In 2016, economic activity is expected to
increase by 4-5 per cent compared to a little more than 1 per cent in 2015 and negative growth in 2012-14.
For 2017, growth is estimated to be a little more than 1 per cent, and 2016 therefore shows signs of being
an extraordinarily good year.
The recovery is primarily due to the fishing industry where prices have developed particularly favorably,
and furthermore, shrimp catches have increased after a number of years with a decline. Shrimp are by far
the most important export article. Increasing building and construction investments also contribute to
economic growth.
The development emphasizes the significant dependency of the development within the fishing industry,
and there is a significant degree of vulnerability towards any future fall in prices and the volume of catches.
The recovery can therefore not be interpreted as a decisive turn in the economic development. A broad
business basis has not been created, and previous expectations to the development of tourism and the
extraction of raw materials as leading industries have not been met. The development within the mining
area is heavily influenced by international prices of minerals and raw materials, and there is no sign of a
decisive turn in the near future.
The underlying, structural problems have therefore not been solved, and no basis for a permanent,
economic progress has been created. The need for reforms is big, and a postponement of the reform
process will make the problems bigger and more difficult to solve.
The labor market
Concurrently with the increased activity, there has also been progress in employment, but there continue
to be big problems in the labor market. The situation can be characterized as a triple mismatch problem:



Qualifications: There is a gap between the required qualifications and the
unemployed persons' qualifications. Persons with an education that is relevant to
the labor market has no difficulties finding a job, but that is not the case for persons
with no qualifying qualifications. A lack of qualifications is the most significant reason
for the unemployment problems.
Geography: The unemployment problem has a geographical dimension as the idle
manpower is not always localized where there is a shortage of manpower.
Incentives: There continue to be situations where jobs cannot be filled despite idle
manpower with the required qualifications. That indicates inadequate incentives to
be employed (the harmonization problem) and inadequate enforcement of the
availability requirements.
These problems show the possibility of using reforms to improve the employment situation independently
of external factors which may be of significance to the development of new business sectors.
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5
Public finances and new budget act
The bill introduced for the 2017 finance act has overall balanced public finances over the period 2017-2020.
Seen in isolation, that is a positive thing, but when it is also taken into account that the economy in 2016
and 2017 has been in a very favorable position, it is a problem when the finance bill is barely balancing. The
ability to handle fluctuations in less favorable years depends on buffers being established during good
years. Updated forecasts of the development in public finances continue to show that expenses increase
more than income and create a significant financing problem.
A bill for a new budget act to ensure a long-term focus in the planning of the economic policy has been
introduced. The new budget act is a clear step forward. The budget act offers a better foundation to
prioritize public activities due to the financing framework. The acquis communautaire also counteracts the
construction investments and maintenance to be given low priority and increases the probability that
extraordinary income is allocated to long-term investments rather than being reflected in increased
expenditures for operations or transfers.
Need for reform and plans
As part of the Political and Economic Report for 2016, Naalakkersuisut put forward a comprehensive
proposal - the Sustainability and Growth Plan - to achieve sustainability in public finances and the
implementation of a process towards a self-sustaining economy through a development of the business
basis.
The Sustainability and Growth Plan contains many objectives and declarations of intent but is less specific
as regards political initiatives/reforms. It is positive that there is a comprehensive initiative to address
fundamental, structural problems and which forms a basis to implement reforms.
The need for reforms is well known, and political action is crucial. Plans for reforms have previously been
announced, and it is now crucial that significant reforms will be implemented. Postponing the reforms will
make the adjustments bigger and more difficult.
The most significant financing contribution in the plan comes from a planned modernization of the public
sector. The intention is to attain an improvement in proceeds of DKK 650m, primarily through a reduction
of public consumption (currently approx. DKK 7,400m) while expenditures for transfers are not significantly
influenced. The plan for reducing public consumption is very ambitious, but it is not unrealistic in the light
of the size of the public sector. However, in order to achieve the intended reduction in expenditures aimed
at, a significant adjustment of the public sector is necessary in order to increase effectiveness and
productivity so that the citizens will not experience any significant declines in standards. Such
improvements do not happen on their own, and there is a risk that achievement of the sustainability in
public finances will appear easier through stating future expenditure cuts not yet implemented rather than
actual reforms that have been politically adopted.
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Industrial policy and infrastructure
The development of a broad business structure is a prime requisite to achieve a self-sustaining economy. It
will also make the economy less dependent on the development within fishery and catch. The adjustment
to a multi-string economy is a central target in the sustainability and growth plan. The plan focuses on the
possibilities within fishery, mining and tourism.
So far, the industrial policy has focused on direct and indirect public support for the business development,
and the discussion is often about the recipients of the aid and how much they should receive. The crucial
factor for a self-sustaining economy is establishing a business basis which is not based on public support.
The support is often granted with no clearly worded policy and with no assessments of effect. Agricultural
subsidies is an example. There is a great need for a thorough reassessment of the subsidy policy
Consideration to employment is often emphasized when planning the industrial policy. That applies to e.g.
the landing obligation, the agricultural policy, fishing licenses etc. Such considerations might be based on
situations with declining employment opportunities, however, they must be weighed up against the risk of
tying up resources in activities with no major future prospects. In case of permanent changes in the
business basis, there will be a need for adjusting the new terms.
An ambitious policy regarding airports and changed traffic conditions have been put forward. Air traffic is of
vital importance to the population and the trade and industry and more specifically to tourism. There is no
socio-economic analysis of the overall plan comprising all plans and proposals regarding air traffic and
airports. To a great extent, the discussion is based on analyses which are of an earlier date or which do not
analyze the entire package.
Education
Challenges within the educational sector are well-known and concern the level as well as the quality of
education. Many resources are spent in that area, and yet many do not get an education, and not enough
get very far in the educational system. There are many explanatory factors behind these facts, but fact is
that there is a huge education lag. The possibilities for developing a basis for trade and industry, increasing
employment and achieving an equal income distribution and wealth and improvements of public finances
are curbed by an insufficient level of education.
Through the years, many initiatives have been taken within the area of education policy. Ambitions have
were high, e.g. Atuarfitsialak, but the results were not satisfactory. Projections in the report also show that
the educational background of the workforce will only see minor improvement in the years to come, and
there continues to be a large education lag compared to most OECD countries.
The educational-political dilemma is that there is a need for action in several areas, the elementary school,
young people etc. All areas are important, but the elementary school will have to be emphasized in this
order of priorities. The elementary school is the foundation of the educational system. If there are no
significant improvements within the elementary school, there will be no significant changes within the
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educational sector, and too many resources will be spent on fixing problems that are due to an inadequate
learning level at elementary school.
In the finance bill for 2017, no significant changes or a change in the order of priorities for the
appropriations within the educational sector are contemplated. Instead, a review of the Primary Education
Act will be initiated and is expected tabled in EM2017. This means that at least one year will pass until a
new Primary Education Act will be adopted, and even more years will pass until the changes can be
implemented at the individual schools.
There is an urgent need for concrete plans of action to achieve improvements at elementary school, and
this is possible within the given, regulatory framework. This should be given the highest, political priority.
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Chapter 1 Economic outlook
Economic activity advanced in 2015 after a decline during the previous three years. The rate of the progress
appears to be bigger this year as growth is expected to be 4-5 per cent, see table 1.1. The recovery is
primarily due to the fishing industry where prices have developed particularly favorably, and furthermore,
shrimp catches have increased in 2016 after a number of years with a decline. Shrimp are by far the most
important export article. Increasing building and construction investments also contribute to economic
growth. Total growth for 2017, however, is expected to be at the same low level as 2015, i.a. due to a low
level of investments.
However, progress is not happening in all areas. Previous expectations to the extraction of raw materials as
a leading industry have not been met. Globally speaking, prices of oil and mineral resources have declined
heavily during the past 4-5 years due to low economic growth in China and other countries that consume
large amounts of raw materials and the previous years' development of the capacity within the raw
material area.
Table 1.1. Supply balance, annual real growth in per cent
Share of
GDP 2014
Private consumption
Public consumption
Total gross capital formation
ex exploration investments
Exports of goods and services
Final demand, total
Imports of goods and services
Gross domestic product, GDP
46.7
54.5
17.2
14.1
33.4
151.7
51.7
100
Growth rate in per cent
2011 2012 2013
2014 2015 2016 2017
2.7
-1.1
27.4
15.3
-1.7
7.9
14.2
2.2
-1.8 -0.3
-0.5
2.2
-40.6 -22.8
-10.8 -8.2
-3.9 -1.5
-14.9 -5.0
-29.3 -10.2
-0.5 -1.3
-1.7
0.6
-44.0
-38.1
0.9
-8.5
-19.2
-1.6
1.8
0.5
24.7
33.6
-6.0
2.4
4.8
1.1
2.1
0.5
27.5
32.3
12.0
7.0
11.4
4.6
1.6
0.5
-2.4
-2.4
4.5
1.2
1.3
1.1
Note: 2011-12 final figures from Statistics Greenland, 2013-14 preliminary figures, 2015-17 the Economic Council’s estimate.
Sources: Statistics Greenland and the Economic Council's estimate.
In addition to the increasing prices of fish and shellfish, there was a simultaneous fall in oil and raw material
prices. Taking into account that much had been different if import as well as export prices had remained
unchanged from 2014 to 2015, it amounts to an increase of income of more than DKK 1b. as a result of
increasing prices of fish and shellfish and falling prices on a number of imported articles.
Regardless of the positive, short-term prospects, unsolved structural problems remain in the form of a very
narrow business basis and a workforce with a low educational level. An unfavorable price development in
the fishing industry can quickly create large economic problems. So will reduced volumes of catch in
addition to normal shifts between various species. A broader business basis is one of the best ways to
prevent the fluctuations in the fishing industry from dominating the entire economy. This will also form the
foundation for an improved level of prosperity.
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1.1.
Fishing industry
Generally speaking, the fishing industry had a good year in 2015 in economic terms. This is primarily thanks
to increasing prices of the most important species in the fishing industry. Prices of shrimp and halibut
increased by approx. 25 per cent, and prices of cod were 30 per cent higher than in 2014. Prices also
increased in most of the previous years, see figure 1.1. Prices of shrimp, which is by far the most important
fishery in economic terms, were thus twice the prices in 2010 while prices of halibut were 50 per cent
higher. The future price development is linked to uncertainty. A recent forecast from OECD-FAO estimates
a tendency of falling prices.
Figure 1.1: Index of average prices of fish and shellfish
250
200
Indeks 2010 = 100
150
100
50
0
2011
2012
Torsk
2013
2014
Hellefisk
2015
2016
Rejer
Source: Statistics Greenland
Shrimp catches have been on the decline for a number of years, see figure 1.2. In 2015, Greenlandic
vessels thus caught approx. 66,000 tons of shrimp in Greenlandic waters compared to 83,000 tons in 2014
and more than 110,000 tons in the years around 2010. With a permitted flexibility, the volume of catches
complies with the politically determined quotas which mainly comply with the biological advice although
there are smaller fluctuations in the quotas than in the advice.
For 2016, biological advice was increased for the first time in a number of years, namely from 60,000 tons
for 2015 to 90,000 tons. Quotas were increased by 16 per cent from 73,000 tons to 85,000 tons. The reason
for the changed advice is the biologists' identification of more shrimp than in previous surveys. However,
uncertainty remains as to whether the fish population is doing better because of natural changes or an
appropriate regulation of fisheries or whether it will continue a downward tendency. Access to fishing of
shrimp is regulated through individually negotiable quotas which, theoretically speaking, is a suitable
system to ensure effective fisheries. With a limited number of participants in fisheries, it can also protect
populations from overfishing. Through the MSC certification of shrimp fishing, the regulation might have
contributed to higher prices.
There is prospect of significant growth in shrimp catches in 2016. If the quota is used, the quantities will
increase by approximately 25 per cent as the quota in 2015 was not fully used due to the weather. In the
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first quarter of the year, close to 20,000 tons have been caught, a progress of almost 40 per cent compared
to Q1 2015 where fisheries were specifically inhibited due to the severe winter. It is uncertain whether the
value of the catch will increase as much as the quantities. Shrimp prices fell extraordinarily from Q4 2015 to
Q1 2016, so prices in Q1 equaled the average of 2015. There are many factors that influence the prices of
shrimp, but it is probable that a significant increase in the Greenlandic volume of catch will imply a low
price as Greenland is a very large producer of cold water shrimp.
Figure 1.2 Greenland fishermen's and vessels' catch in Greenlandic waters
Tons
140.000
120.000
100.000
80.000
60.000
40.000
20.000
0
2010
2011
Hellefisk
2012
Rejer
2013
Torsk
2014
2015
Makrel
Source: Statistics Greenland
In economic terms, halibut is the second most important species in the fishing industry. In 2015, fisheries
were roughly at the same level as the year before. Approximately 80 per cent of the amounts caught are
caught in sheltered waters, and there was a decline which might be due to the severe winter. For some
time, biologists have been concerned about the extent of parts of the fisheries in sheltered waters. In the
Disco Bay, the advice was lowered from 8,000 tons to 6,400 tons as surveys indicate that stocks are
declining. Furthermore, the size of the fish caught has also been decreasing for a number of years, and it
therefore requires bigger effort to catch a given volume. The advice for halibut in sheltered waters is not
closely followed when determining the quotas. In addition, there is a tendency for the quotas to not be
binding as will be raised if the quota of the month has been used before the end of the month. For the first
half of 2016, fisheries of halibut in sheltered waters were approx. 40 per cent higher than the year before.
Fisheries of cod were tripled from 2012 to 2015 when it reached 37,000 tons, the same volume as for
halibut, but the price was lower. In some areas of the southern part of Greenland, cod has clearly
contributed to creating a positive development. Fisheries are primarily in sheltered waters. Biologists
recommend that no fisheries are done directly in the populations in open waters north of Qaqortoq in
order to increase the probability that a spawning stock is generated. In the 1960ies, more than 300,000
tons were caught annually.
In 2012, there was a total decline in shrimp, halibut and cod of 6 per cent in the volumes fished for in 2015.
There was a small decline in fisheries in sheltered waters while catches in sea-going fishing fell by 12 per
cent. However, the decline in volumes was counterbalanced by the previously mentioned increase in prices,
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so the value of the catches increased by approx. 17 per cent. Earnings in large parts of fisheries were
therefore particularly good in 2015, and that is also expected to be the case in 2016. The numbers for 2017
are based on unchanged volumes of halibut and shrimp compared to 2016 and a small increase in the
volume of cod and unchanged prices from 2016 to 2017 for all species.
In recent years, there have been mackerel and other pelagic fish such as herring and blue whiting in
Greenlandic waters for some months in the summer. Greenland has initiated experimental fishing of
mackerel in Greenlandic waters with a view to being recognized as a coastal state and thereby obtain a
share of the joint quota for the North Atlantic. The other coastal states are the EU, Norway, the Faroe
Islands and Iceland. The recognition as a coastal state offers the possibility of rational planning of fisheries
through the possibilities of fishing in the waters of other coastal states. Greenland unilaterally determined
a quota of 85,000 tons. In 2014, nearly the entire quota was used which increased exports by DKK 325m or
more than 10 per cent of the total commodity exports. In 2015, however, catches fell to 30,000 tons, and
income fell correspondingly. The development of 2016 is not known at present. The total mackerel fisheries
in the North Atlantic clearly exceed the biological advice, but it is still uncertain whether that means a
declining population. A quota of 20,000 has been determined for herring, approx. the double of the catches
in 2014 and 2015.
1.2.
Tourism
Through the plans in the national sector plan for tourism starting in the spring of 2016, Naalakkersuisut
wishes to make tourism a central industry in Greenland. The background is that previous expectations have
not been met.
Figure 1.3 Number of cruise passengers and hotel guests
60000
Antal personer
50000
40000
30000
20000
10000
0
Krydstogtspassagerer
Hotelgæster fra Grønland
Hotelgæster fra udland
Source: Statistics Greenland
That is particularly clear as regards the cruise tourism where the number of passengers fell by more than 30
per cent from 2010 to 2014, see figure 1.3. As is stated in the figure, development in the number of hotel
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guests has been uneven. The progress experienced is primarily due to more Greenlandic guests while the
number of foreign guests (incl. Danes) has been fairly constant in recent years. To the extent that the
Greenlandic guests are not meeting or conference participants but tourists in their own country and at
their own expense, they are obviously as important to tourism as foreigners.
Until summer 2014, air traffic statistics only covered commercial aircrafts, and the passengers cannot be
allocated according to their residence. The number of passengers in regular traffic to and from Greenland
peaked in 2008 and gradually fell by approx. 10 per cent up until 2014.
However, there was progress in all areas mentioned in 2015. That applies not least to cruise tourism where
the number of passengers increased by 10 per cent. The previous passenger duty of DKK 750 per passenger
was replaced by a port fee at a level that has to be competitive to Iceland and Svalbard. The new statistics
of the nationality of all airplane passengers from Greenland, commercial as well as charter, also indicates
progress in tourism, but the information regarding whether the departing passengers are permanent
residents saw some start-up problems. During the first 12 months with the new statistics, the residence
had not been stated for 24 per cent of the passengers. That fell to 16 per cent in the 12 months from July
2015 to June 2016. That makes it difficult to interpret whether the growth is primarily due to persons with
their residence in Greenland, Denmark or other places. The central element in the sector plan for tourism is
massive investments in the infrastructure so that it will be easier and cheaper for tourists to get to the
country. In that case, tourism will undoubtedly benefit, but if it is to benefit the entire society, the
additional traffic must also be able to cover payment of interest and depreciations of the investments. This
subject will be dealt with in chapter 2.
1.3.
Resources
There has been no extraction of mineral resources in Greenland since the gold mine in South Greenland
closed down in 2013.
Figure 1.4 Expenditures for oil and mineral exploration
13
Source: Statistics Greenland
It was expected that the company True North Gems Greenland would have started extracting rubies at
Qeqertarsuatsiaat in 2016. However, the project has been delayed due to financing, and there is currently
much uncertainty regarding the starting date of the extraction. The mine is assessed to offer employment
to approx. 80 persons in the phase of operation.
Capital expenditures in relation to a project for the extraction of the anorthosite rock at the Kangerlussuaq
Fjord rather close to Sisimiut have not come as far as previously expected. This is a project with
approximately the same number of employees during the phase of operation as the ruby project.
There are also two advanced projects in South Greenland relating to the extraction of rare soil types etc.,
one of the projects with uranium as an inevitable by-product. In the spring of 2016, the terms for being able
to export uranous resources were agreed between the Danish government and Naalakkersuisut. However,
the production licenses for the projects are not yet in place.
Expenditures on raw material exploration have been on the decline in recent years, see figure 1.4. Without
a doubt, the main reason is that not only oil prices but also prices of mineral resources are at a low level.
IMF's index of prices of metals has been halved since 2012, see figure 1.5.
Figure 1.5 IMF's index of metal prices
Note: The weighing of the price index in USD for copper, aluminum, iron ore, tin, nickel, zinc, lead and uranium
Source: IMF Primary Commodity Price System
Based on the price development, the companies' interest in exploration and in establishing new mines,
even where exploration identified interesting occurrences, is expected to be modest for some time to
come. Experience, however, indicates that the development may turn relatively quickly if the growth in the
world economy continues to increase, and the existing mines will be emptied at a faster rate. IMF’s World
Economic Outlook from October 2015 had a special chapter, Commodity Special Feature, about raw
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materials with special focus on metals. The conclusion was that the balance between supply and demand
points to a "low-for-a-long-time" scenario for metal prices. That is especially due to a noticeable slowingdown in the Chinese demand for raw materials. China's consumption of most metals is in the range of 5060 per cent of the world's total consumption. The special chapter referred to assesses that the Chinese
slowing-down is of a structural nature.
The probability of the extraction of raw materials becoming a leading industry in the course of few years
has therefore diminished in recent years. There is a potential in the long term. When raw material prices
will recover at some point in time, it is important that the terms for extraction are known and competitive
in overall terms compared to other potential producing countries.
Aluminum has also been affected by heavily falling prices. One of the possibilities of exploiting the large,
unexploited hydro-electric resources in West Greenland has been put on stand-by. Hydro-electric power
continues to be an important element in future possibilities within the raw material area.
1.4.
Investments
The Government's capital expenditures were very low in 2014 but went up in 2015. 2016 will probably
show further growth. Payments from the Construction and Renovation Fund increased in 2015, see figure
1.6, and a further increase is expected in 2016.
Figure 1.6 Payments from the Construction and Renovation Fund
Mio. kr
1.200
1.000
800
600
400
200
0
2011
2012
2013
2014
2015
2016
Udbetalinger fra Anlægs- og renoveringsfonden
Note: Sum over 12 months. The latest observation is June 2016.
Source: Statistics Greenland
Furthermore, a growing part of the publicly controlled investments is made through companies. The
current building of a container port at Nuuk is made by the Government-owned company Sikuki Harbour
A/S, and the planned airport investments in Ilulissat, Nuuk and Qaqortoq have been placed in a recently
15
formed company, Kalalliit Airport A/S. In addition, there were significant activities in 2016 linked to the fact
that the Danish state is building a closed prison at Nuuk.
Assessed by the mortgage credit institutions’ loans to Greenland, the activity of building owner-occupied
homes has been rather modest, see figure 1.7. The addition in loans is a good indicator of the extent of the
building activities in a period before the payment dates, but it must be taken into account that repayments
are made on loans previously granted, and the Government and the municipality often finance part of the
new construction on favorable terms. The fairly limited activity in relation to the construction of owneroccupied homes is expected to continue in 2016 also.
In 2016, Royal Arctic Line had 1 of an expected 5 vessels delivered from a Polish shipyard. These
investments have been delayed, but that does not seem to affect local activities whereas it will be reflected
in imports. Furthermore, TELE Greenland is expected to invest in an extension of the submarine cable from
Nuuk over Maniitsoq and Sisimiut to Aasiaat in 2017 and also in a high-speed radio link between Aasiaat
and Ilulissat. This will lead to an improvement of the electronic infrastructure in Sisimut and Maniitsoq as
well as in the Disco Bay.
The favorable development in volumes as well as earnings of fishery will probably lead to increased
investments in trawlers and other equipment. This cannot yet be seen in the foreign trade statistics and will
not directly influence the activity as vessels, engines etc. are imported. To the extent that fisheries can be
rationally done, it will contribute to increasing earnings and activities within fisheries in the future.
Figure 1.7 Mortgage credit institutions' loans to Greenland
Mio. kr.
3.500
3.000
2.500
2.000
1.500
1.000
500
0
2005
2006
2007
2008
2009
2010
2011
I alt
2012
2013
2014
2015
2016
Ejerboliger
Sources: Statistics Greenland and The Danish Financial Supervisory Authority
1.5.
Consumption
When comparing to other countries, it is characteristic that private consumption is lower than public
consumption. There is hardly any other market economy where this is the case. That means that the
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development in private consumption is of less importance to the economic trends than in other countries,
whereas investments, especially within building and construction, and exports are of greater importance to
the economic cycles.
Figure 1.8: Index for retail sales, seasonally adjusted
2010 = 100
120
115
110
105
100
95
90
2010
2011
2012
2013
2014
2015
2016
Indeks for detailomsætningen, sæsonkorrigeret
Source: Statistics Greenland
Parts of the private consumption can be illustrated by the retail sales for the three largest Greenland retail
chains, see figure 1.8. There are clear indications of significant progress within retail sales since the summer
of 2015. In Q2 2016, sales were approx. 7 per cent higher than sales a year before. As inflation in recent
years has been around 1.5 per cent annually, there has also been significant progress in volumes. However,
one of the retail chains bought a competitor not part of the chains, so some of the progress reflects that
the chains gained market shares collectively. The growth is chiefly consistent with the fact that there has
been significant income growth, especially from fisheries, but also from the building industry.
Significant growth in consumption and investments is also supported by the fact that amounts of goods by
Royal Arctic Line in the first six months of 2016 were almost 25 per cent higher than the year before.
1.6.
The labor market
The assessment from the labor market from month to month must be based on the statement of the
number of registered job seekers. The statistics are a count of the persons who have contacted the
municipality at some time during a month in order to announce unemployment. The statistics may be
difficult to interpret as they are influenced by i.a. the administrative practice in the municipalities.
17
During the first six months of 2016, the number of registered job seekers were 3,230 persons on average
compared to 3,958 persons in the same period last year. The decline is so big that it must reflect a
significant decline in unemployment regardless of the difficulties in interpreting the statistics. The decline in
the number of registered job seekers applies to each of the months and for towns together and for
settlements together. There are very few locations where this development is not found.
Statistics Greenland publishes annual register-based unemployment statistics. The statistics do not include
persons among the unemployed persons who in the same month have had paid employment and have
registered as job seekers. The number of unemployed persons were determined to be 2,754 in 2014. That
is an unemployment rate of 10.3 per cent of the workforce in 2014 compared to 10.1 per cent in 2013 and
9.8 per cent in 2012. Based on the development in the number of registered job seekers, unemployment is
currently somewhat lower, probably at the level of 7-8 per cent.
The workforce and population declined during the years up to 2014 due to net immigration. The population
also declined in 2015. Probably as a consequence of the economic growth, the population on July 1 2016
was slightly higher than the year before, 56,186 compared to 56,114. As the excess of births is a little more
than 300 persons annually, there was still a net immigration of persons born in the country. In return, the
number of persons that are not Danish citizens have increased. That especially applies to persons from
some of the countries in Eastern Europe and Asia.
Unemployment is particularly large among persons without education after the primary and lower
secondary school. According to the registry statement for 2014, an average of 15.5 per cent of that group
were without jobs. That is almost three times as much as for persons with a vocational education.
Unemployment among persons with a higher education is less than 1 per cent.
One sign of the large structural problems in the Greenland labor market is the fact that despite the high
unemployment among persons with no education after elementary school, there is still immigration of
unskilled labor.
1.7.
Conclusion
In the short term, the economy develops positively. In 2015, three years with a decline were turned to little
progress in the economy, and in 2016, it seems that growth will be rather strong, 4-5 per cent. The reason
is partly the favorable income development as a result of increasing prices of fish and shellfish, partly a
significant increase of the shrimp quota in 2016, and finally a substantial contribution to growth from the
building and construction investments.
The estimates for the future development naturally involve some uncertainty. On the one hand,
implementation of one or two of the raw material projects will have a positive effect. On the other hand,
fisheries can hardly surprise in an upward direction as volumes as well as prices are at a high level. In other
words: The risk exposure from fisheries is not symmetrical.
18
19
Chapter 2 Current economic policy
Growth expectations are positive. Several years of decline have been turned to progress in the economic
activity. To a large degree, the development is driven by favorable prices of shellfish and fish and also
building and construction activities. The recovery can therefore not be interpreted as a decisive turn in the
economic development. The underlying, structural problems have therefore not been solved, and no basis
for a permanent, economic progress has been created. The need for reforms is big, and a postponement of
the reform process will make the problems bigger and more difficult to solve.
The increasing activity is also reflected in increased employment, but there continue to be significant
structural problems at the labor market. The situation can be characterized as a triple mismatch problem.



Qualifications: There is a gap between the required qualifications and the
unemployed persons' qualifications. Persons with an education that is relevant to
the labor market has no difficulties finding a job, but that is not the case for persons
with no qualifying qualifications. A lack of qualifications is the most significant reason
for the unemployment problems.
Geography: The unemployment problem has a geographical dimension as the idle
manpower is not always localized where there is a shortage of manpower.
Incentives: There continue to be situations where jobs cannot be filled despite idle
manpower with the required qualifications. That indicates inadequate incentives to
be employed (the harmonization problem) and inadequate enforcement of the
availability requirements.
A solution to the problems linked to qualifications/education, geographical mobility and the incentives to
be employed is a prime requisite to solve the employment problem. It will also be of great significance to
the wealth, but also to the income distribution, social conditions and living conditions in a general sense.
The above problems have characterized the economy through a number of years, and the need for reform
is therefore urgent. For a considerable period of time, notice has been given of reforms in order to solve
these problems, but these problems are so fundamental that they should be given top priority and be
implemented as soon as possible. It is problematic that reform proposals for areas as important as the
elementary school and social benefits will not presented until the spring of 2017 and 2018, respectively,
and therefore adoption and implementation will take place several years later. The problems are welldocumented, and it applies to all political areas where changes will not take effect until after a certain
period of time. The arguments to give this area top priority in the political process are therefore strong.
2.1 Public finances and the budget act
Measured on the so-called Operation and Construction Balance (the DA balance), public finances show a
deficit of DKK 57m in 2016 and a surplus of DKK 33m in 2017 according to the Finance Bill 2017 (FFL 2017),
see figure 2.1. The improvement from 2016 to 2017 is a result of increasing tax income, primarily driven by
progress in fisheries.
20
A target is that the DA balance must be balanced over a four-year period. This requirement is met by the
finance act presented if it is assessed forward-looking for the budget years 2017-2020. By contrast, if it is
assessed retrospectively for the years 2014-2017, the balance shows a deficit of DKK 109m. That difference
emphasizes that although the finance bill fulfills the forward-looking requirement, that is not enough to
counter previous years' deficit. When it is also taken into account that the economy in 2016 and 2017 has
been in a very favorable position, it is a problem when the finance bill barely fulfills the balance
requirement. The ability to handle fluctuations in less favorable years depends on buffers being established
during good years. That is the intention behind the bill introduced for a new budget act, see below, but the
finance bill does not live up to the intentions of the Sustainability and Growth Plan.
Figure 2.1. Public finances – DA balance 2011-2020
200
150
100
mio. kr.
50
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
-50
-100
-150
-200
-250
Regnskabstal
Skøn
Finanslovsforslag
Note: Positive numbers indicate surplus.
Source: Finance bill 2017
The Finance Bill for 2017 only contains few specific initiatives for reforms but repeats a schedule for
reforms in various areas. The bill also states calculated proceeds effects of the reforms. The calculations are
difficult to see through as the precise reform plans, and with that the factors on which the calculations are
based, are not known. As the reforms outlined seem to strain public finances with a total of DKK 22m
during the period 2017-2020, it is necessary with a clarification of the content of these reforms and their
effects on public finances in the future beyond the four-year period. It is a necessary requirement that the
reforms contribute to solving the sustainability problem, and there is a latent risk that improvements of
service and income transfers will be prioritized above necessary tightenings.
New budget act
The public sector is big, and public finances are therefore of vital importance to the economic
development. A stable and predictable development of public finances are of vital importance. That applies
21
short-term in relation to the economic trends as well as long-term in relation to the possibilities of
financing the schemes and services of the welfare society (fiscal sustainability).
The development within public finances has been problematic in recent years and has been controlled by
short-term considerations. The need for reforms in order to secure fiscal sustainability has been postponed,
and the finance acts have been driven by a need to avoid deficits where one-off solutions such as asset
sales (housing and other assets) were a part of the solution. Temporary increases of income have often
been turned into increases in expenditure which contributed to large fluctuations in the financial activity
and worsened the balancing problems. Through a number of years, maintenance has been given too low a
priority, causing a large maintenance lag.
Ensuring a stable development in public finances is crucial, planned based on long-term considerations. A
zigzag course is unfortunate and creates uncertainty which has a negative effect on the economic
development in itself. At the same time, it is also important to have the latitude to manage fluctuations in
the economic activity.
It has also been a problem in many other countries that the public finances are controlled based on shortterm considerations with the implication that the policy lacks continuity and credibility. Problems with
deficits and debts will dictate the economic policy, and fundamental reforms will be postponed, and
problems will grow and be more difficult to solve. For that reason, so-called fiscal rules were introduced,
that means rules for the balanced budget (the difference between revenue and expenditure) and spending
controls. The specific design of such rules varies across countries, but the basic idea is to lay the
groundwork to give medium-term and long-term considerations a bigger role in the planning of the
economic policy. The purpose is to get an improved planning basis and to avoid that the economic policy is
too driven by short-term considerations. That creates a better foundation for the economic, political
prioritization relative to public expenditure and income and therefore also public finances.
Naalakkersuisut has introduced a bill regarding the act on the budgets and financial statements of the
municipalities and the Government of Greenland which partly builds on the previous budget act and partly
introduces some new elements, see Box 2.1.
The proposed budget act is a big progress as it sets the frames for a medium and long term focus in the
planning of the economic policy. That contributes to a clear discussion about priorities in relation to the
activities and financing of the public sector. The acquis communautaire counteracts the construction
investments and maintenance to be given low priority and increases the probability that extraordinary
income is allocated to long-term aims of investments rather than being reflected in increased expenditures
for operations or transfers.
The balance requirement, worded over a four-year period, is estimated to give the possibility of absorbing
fluctuations in public expenditure and income caused by temporary fluctuations in the financial activity.
The bill must be understood in the way that the requirement applies four years ahead at the introduction
of the finance act. However, in the Sustainability and Growth Plan as well as in the submission note of the
introduction of the bill in Inatsisartut, it is stated that the requirement applies retrospectively as well as
forward-looking. That addition is important.
22
The budget act contains the following main points:
Spending controls: The municipalities and the Government of Greenland's total expenditures on operations has
an annual maximum limit of a real growth of 1.5 per cent, and in total over a four-year period, real growth must
not exceed 2.0 per cent (i.e. 0.5 per cent in average per year). The municipalities and the Government's total
expenditures on operations and transfers must be max. 93 per cent of the anticipated income over a four-year
period.
In exceptional cases, the requirement for the real growth in the public operating expenditures may be deviated
from under particularly difficult financial situations and economic decline caused by conditions beyond the
Government's control and of decisive importance to the total public finances.
Public finances: The total, public finances (the DA balance) must show a balance or surplus over a four-year
period.
Borrowing: Borrowing may only be for investments in housing, business and infrastructure projects, and
provided that user fees, reduced public expenditure or derived, public, additional income can finance the
interest and repayments linked to the loan as a minimum. This should be seen in the context of existing limits for
debt (so-called covenants in current loan agreements) according to which the net interest-bearing debt of the
Government and the municipalities may not exceed 20 per cent of the Treasury's income, and the total net
interest-bearing debt in the Government, municipalities and publicly owned, limited companies may not exceed
75 per cent of the Treasury's income.
As before, the budget act includes a construction and renovation fund. That is an accounting fund of the
Treasury's financial statements with the purpose of ensuring a flexible discontinuation of construction activities.
A fund for long-term investments is established and is supplied with means from extraordinary income from i.a.
proceeds from corporation taxes in connection with foreign companies' exploration and construction activities
within the raw material area (above a lower threshold of DKK 30m), proceeds from the sales of the
Government's assets etc. The funds must be spent on supporting long-term, economic considerations and must
be invested with sufficient security in order to provide the biggest possible return and the best possible socioeconomic effects.
The municipalities: Four-year budgets must be established on a continuing basis, and these are subject to
balance requirements, i.e. expenditure may not exceed income in the budget. For the municipalities, loaning,
renting and leasing requires approval from Naalakkersuisut or must be in accordance with current rules. There is
also a number of rules for budgeting and follow-up.
Sanctions: If the final expenditure of the municipalities or the Government of Greenland for the financial year is
expected to exceed the income of the municipalities or the Government of Greenland by more than 2.5 per cent
of the income, disposal limitation equaling the expected excess of the threshold will be implemented.
If a municipality has expenditures that are higher than the income so that the deficit constitutes more than 2.5
per cent of the income, the block grant for the subsequent year will be reduced correspondingly
Box 2.1 Budget act
23
as otherwise it is possible to constantly meet the future requirement through expected, future reforms. To
the extent that these are not implemented, it will be evident in the retrospective statement, but there are
no sanctions linked to such a deviation. As the law does not clearly define that the requirement applies
retrospectively as well as forward-looking, there is a risk that the balance requirement is not worded
sufficiently clear. This is illustrated in that FFL 2017 meets the forward-looking but not the retrospective
requirement for the DA balance.
As regards the budget rules, there is a continuous risk as to the extent that they will create sufficient
latitude for a policy actively regulating economic cycles. The problem is linked to a recession and the risk of
breaking the requirement for the budget balance. That question must be assessed based on the real
possibilities of countering a decline in the economic activity through increased public expenditure or lower
taxes. The stabilization political possibilities in this country are significantly different than in most other
countries due to the special production structure. It is not possible to counter the activity consequences of
a decline in fisheries, e.g. a sudden drop in a population or a drop in the international demand, through the
fiscal policy. In such a situation, income for the unemployed is secured by the social safety net, and neither
tax reliefs nor increased expenditures will be able to maintain activity in the sector (given that the
biological advice is complied with). In the short term, there are no other applications for the production
capacity and the qualifications of the workforce. In case of a continuous decline, there is a need for reallocation of the recourses to other sectors. To a certain extent, fluctuations in e.g. the building and
construction sector can be countered through public construction activities. That is possible through the
two "budget funds", see below. It is therefore estimated that the budget rules do not limit the real
possibilities of pursuing a policy that regulates the economic cycles in situations where there is a decline in
the financial activity, but maybe rather increase them.
In that context, it is noteworthy that the budget act states an exemption clause from the requirement for
the real growth linked to public operating expenditures (transfer expenditures are not comprised by that
ceiling) applicable in a drastically worsened economic situation based on external conditions. Public
operating expenditures are linked to central welfare tasks, and it is not expedient to change these for a
brief period in an upward or downward direction out of consideration for the economic cycles. If there
were a need for further room for an active policy for economic cycles in special situations, it would
therefore be obvious to link the exemption clause to the budget balance requirement.
The biggest uncertainty factor within the public budgets is the income side where e.g. income taxes as well
as resource fees are heavily dependent on the development within fisheries. According to the budget bill,
extraordinary income from i.a. proceeds from corporation taxes in relation to foreign companies'
exploration and construction activities within the raw material area (above a lower threshold of DKK 30m)
must accrue to a budgetary fund - Fund for long-term investments - with the purpose of avoiding that
temporary increases of income are turned into increased operating expenditures but are rather allocated
to construction activities. Fluctuations in tax proceeds created by the development in fisheries may be
similarly big, and there therefore continues to be a risk that temporary increases in the tax proceeds are
turned into increased operating expenditures.
The minimum requirement for expenditures for construction (minimum 7 per cent of the total income) and
the construction and renovation fund and the investment fund ensure that the construction investments
are given a higher priority. That will also form the basis for an even activity level which might be cost24
saving as well as conducive to the sector/planning etc. Finally, it also gives a potential possibility of actively
pursuing a policy regulating economic cycles through aiming at a counter-cyclical use of the funds (as a
minimum avoid that they are procyclical). That requires forward-looking planning as large construction
activities require a long period of preparation (planning, approval etc.).
The upper limit for growth in public expenditures has been determined only for the operating
expenditures. That limit must be seen together with the Sustainability and Growth Plan, see below, where
tight spending controls are a central target. The target figure has been determined in the form of the socalled real growth in the operating expenditures. Determination of the target figures in terms of the real
growth may cause ambiguities as the statement does not directly match the budgets that have been
politically decided. Real growth in the public consumption is a statistical survey in which the actual
development in expenditures is split up in a price and a volume component. There is some uncertainty
linked to such a classification, and it cannot be conclusively made based on national account figures.
Operationally speaking, it is more expedient with budget ceilings that have been determined in specific
financial terms so that it will match the budgets for political negotiation and enable budget control.
2.2 Sustainability analysis
The challenges of the public finances are well-known. Expenditures will increase faster than the income,
and that will bring pressure to bear on the public economy for many years to come. The Economic Council
annually assesses the sustainability based on the most recent economic development, the budget act
proposal for 2017, new data etc. The main results of the 2016 analysis1 are summarized in figure 2.2.
1
For further documentation, see Technical background memo 2016-1: Updating of fiscal sustainability
2016.
25
Figure 2.2: Projection of public revenue and expenditure as a percentage of GDP, 2005-2040
Pct. af BNP
80
75
70
65
60
Indtægter
Udgifter
Fremskrivning indtægter
Fremskrivning udgifter
Note: The figure shows the public revenue and expenditure, without interest and dividends, for public service and administration
(the Government, the municipalities and the State) stated in a national account form, see Public Finances, Statistics Greenland. In
the statement, the State expenditure and revenue balance and do therefore not influence the public balance.
The basis for the sustainability analysis is the policy adopted, and no effects of economic proposals or
consequences of announced but not yet determined reforms are included. The purpose of the
sustainability analysis is to give an idea of the economic challenges and with that also of the requirement of
political initiatives. As no reforms that substantially strengthen the sustainability of the public economy
have been implemented in recent years, there are no decisive changes in the assessment of the
sustainability problem compared to previous analyses from Economic Council, see figure 2.2.
The Sustainability and Growth Plan sets the stage for a reform process towards a self-sustaining economy.
The plan will be dealt with in the next section. A modernization of the public sector in the form of efficiency
improvements and savings play a significant role in closing the gap between expenditure and income. It is
an ambitious, but realistic target if there is a consistent, political will to make the necessary - but often
unpopular - prioritizations in welfare schemes and administration.
The possibilities of modernizing the public sector exist. The composition of population with many working
age people and relatively few children, young and elderly people means that the draw on the public
expenditures is still rather modest. Public expenditures per child, young and elderly person are much higher
than the expenditures per person active in the labor market. In 2016, the number of children, young and
elderly people made up approx. 40 per cent of the number of working age people, see the so-called
dependency ratio in figure 2.3. From the beginning of the 2020ies, the large year groups will reach the
retirement age, and the dependency ratio will increase rapidly up to 50 per cent in the middle of the
2030ies. It can be seen that there is a close connection between the pressure on public expenditures (figure
2.2) and the dependency ratio (figure 2.3).
26
In the years to come, it is therefore important to utilize the possibilities of limiting the public spending
growth - as is also implied in the proposal for a new budget and financial statements act. Efficiency
improvements in the public sector will therefore contribute to ensuring a solid basis for the public economy
when the large year groups retire, and the pressure on expenditures on health, care of the elderly,
pensions etc. will increase.
Figure 2.3: The dependency ratio – young and elderly people measured in relation to the potential
workforce
55%
50%
45%
40%
2040
2038
2036
2034
2032
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
35%
Source: Statistics Greenland.
2.3 The sustainability and growth plan
As part of the Political and Economic Report for 2016 report, Naalakkersuisut put forward a comprehensive
proposal - the Sustainability and Growth Plan - to achieve sustainability and the implementation of a
process towards a self-sustaining economy. The pivot of the plan is the two main issues: the development
of business opportunities and the securing of sustainable, public finances. The issues are well-known and
have i.a. been described and analyzed in previous reports from Economic Council.
The Sustainability and Growth Plan has four main tracks: i) increased level of education (discussed in
Chapter 3), ii) promoting growth and adjusting to a multi-string economy, iii) modernization of the public
sector, and iv) increased financial independence through reforms of welfare benefits, the tax system and
the housing area. The plan lists a number of overall objectives:
•
Average growth in GDP up until 2030 exceeds the growth rate from 2000-2014
•
Rate of employment up on 80 %
27
•
Share with earned income under SIK's minimum wage will be reduced to 5 per cent in 2030
•
70 % of the your groups that finish elementary school in 2015 must have an education
qualifying for the labor market before they turn 35
•
Net emigration will be turned to population growth in 2020
•
Measurable social improvements and progress in public health
•
At least half of the population must have access to high-speed Internet in 2020
•
Balance on public finances – also long-term up until 2030
•
Ongoing production development in the public sector
The plan contains a number of specific intermediate aims for each reform track and planned initiatives.
The Sustainability and Growth Plan contains many objectives and declarations of intent but is less specific
as regards political initiatives/reforms. It is positive that there is a comprehensive initiative to address
fundamental, structural problems and which forms a basis to implement reforms. The need for reforms is
well known, and political action is crucial. Plans for reforms have previously been announced, and it is now
crucial that significant reforms will be implemented. Postponing the reforms will make the adjustments
bigger and more difficult.
Based on public finances, the aim of the plan is to ensure an improvement of DKK 1,060m in 2030 and with
that the closing of the future gap between expenditures and income. This effect has been combined based
on the following sub-components: Increased level of education DKK 120m, promotion of growth and
adjustment to a multi-string economy DKK 270m, modernization of the public sector DKK 650m, increased
self-support through reforms of welfare benefits, the tax system and the housing area DKK 20m.
The most significant financing contributions thus come from a modernization of the public sector. The
purpose is to obtain an improvement in proceeds of DKK 650m, primarily through a reduction of public
consumption (which currently makes up DKK 7,400m) as the reform track that is linked to the social
benefits should only contribute with DKK 20m. The plan for reducing public consumption is very ambitious,
but it is not unrealistic viewed in the light of the size of the public sector. However, in order to achieve the
intended reduction in expenditures, an adjustment of the public sector is necessary, not only in the
administrative procedures, but also in relation to the procedures aimed at citizens in order to ensure that
the citizens do not experience significant declines in standards. It is easy to set targets for public savings,
but it is difficult to reach them without impairing the extent or quality of the service offerings (teaching,
health, nurturance etc.) that are made available to the population. A pressure is also to be expected for
increased expenditures within several welfare areas concurrently with the general social development.
That especially applies to the health area. Continued development in methods of treatment and
possibilities should be expected to be cost driving as is also emphasized by i.a. OECD and IMF. If that is to
be met under the expenditure framework set out, there must be a proportional expenditure reduction in
other areas. Alternatively, the health care system will be seen as outdated to a greater extent. That
dilemma emphasizes the difficulties in reducing public expenditures. It also points to the risk that achieving
sustainability in public finances seems easier through stating future expenditure cuts not yet implemented.
28
Such expenditure cuts might prove difficult to implement if they cause declines in standards for the
citizens. Expenditure cuts without declines in standards are possible through efficiency improvements and
increases in production, but such improvements do not come about automatically and require specific
initiatives.
The aim of the Sustainability and Growth Plan is therefore not only ensured through tight control of the
public expenditures, see the budget act, but requires initiatives in order to increase effectiveness and
productivity in the public sector. There is no simple solution, particularly not given a modest population size
with a dispersed settlement pattern which causes small-scale disadvantages. It is crucial that explicit plans
and procedures are worded in order to increase effectiveness and productivity in the public sector. That
requires ongoing monitoring and follow-up in order to ensure that the aims set up are met.
In the track linked to "Increased financial independence through reforms of welfare benefits, the tax
system and the housing area", specific initiatives are lacking. The harmonization problem and the modest
gain of working are a key problem. The plan prepares the ground for introducing employment allowances
and changed offsets in housing subsidies, public aid etc. However, the presented material does not clearly
indicate that this will reduce the so-called harmonization problem as the phasing out of the employment
allowance in case of a sufficiently large income will reduce the economic gain of an income growth. There is
an acute need of a coherent reform in this area. At the same time, the activation requirements - and the
administration thereof - are a significant factor for the incentives for active job-seeking and employment.
The organization of the social safety net must reflect the terms in the production possibilities of the
country. Variations in fishery and catch are a basic condition which creates variations in employment and
income. The proposal to base the granting of social benefits based on so-called current income is a step in
the right direction as it ensures an allocation based on actual income over the most recent 12 months. The
activation requirements in the social system, including requirements for active job-seeking, must be
adapted to the available employment opportunities. Variations in the need for labor are a basic condition in
fisheries, and the labor market policy must be adjusted to that need, not the other way around.
Problems in the housing area are well-known despite the significant public subsidies of owner-occupied
homes as well as rented accommodation. There is a shortage of housing in parts of the country, there is a
significant maintenance lag, and subsidies of housing are also given to well-to-do families. The plan lists the
following primary objectives for the housing policy: as many as possible should provide their own housing
through their own home, and public housing should be targeted so that a full-time employee with SIK's
minimum wage can pay the rent. It is not clear that the proposals presented will solve the problems within
the housing area. The proposals do not entail an essential break with the significant subsidies (among other
things, the tax relief is proposed changed into an interest subsidy which will mean increased subsidies) or
the securing of an improved targeting of the subsidies. It is also not obvious that it is societally expedient
that as many as possible have an owner-occupied home if there is not a sufficient catchment population to
ensure a well-functioning market. A flexible rental market is of great significance to flexibility at the labor
market.
29
2.4 Industrial policy and grants2
The development of a broad business structure is a prime requisite to achieve a self-sustaining economy. It
will also make the economy less dependent on the development within fishery and catch. The adjustment
to a multi-string economy is one of the main tracks in the Sustainability and Growth Plan. The plan focuses
on the possibilities within fishery, mining and tourism. This is a natural basis as the foundation for a broad
business basis must be found in areas where the country has or can develop comparative advantages.
Education and the qualifications of the workforce are a prime requisite for a development of the business
basis, and the question will be discussed in more detail in Chapter 3 of this report.
The industrial policy is of great significance. Industrial policy is a broad collective designation of political
areas ranging from rules for establishment over fiscal policy and any support or subsidies of specific
industries for any public ownership of companies.
International experience shows that stability in laws, rules and administrative procedures is a critical factor
for the business development. This makes demands on the political stability, but also on delegation and
administrative practice. Similarly, short and effective case administration is of great significance.
So far, the industrial policy has focused on direct and indirect public support for the business development,
and the discussion is often about the recipients of the aid and how much they should receive. The crucial
factor for a self-sustaining economy is establishing a business basis which is not based on public support.
It is an often presented argument that domestic production must be supported in order to replace import
(import substitution). Such an import substitution policy has been the object of much international debate,
not least as a number of developing countries have aimed at such a policy. Experience with that type of
policy, however, is mixed, and there has often been negative effects.
International trade is based on the utilization of comparative advantages which means that the countries
specialize in what they are particularly good at or for which they have special qualifications compared to
other countries. It is an advantage to the country to specialize in these activities and then import other
goods or services for which the country has no comparative advantages producing. In that way, the
advantages of the division of labor are utilized with the possibility of a higher standard of living than with
self-sufficiency.
Public support for a specific industry or activity must therefore require potential comparative advantages
which can be utilized or developed but where various barriers prevent this from happening. With support
for a brief period, these barriers can potentially be overcome so that the industry can manage in the
international competition. If the import substitution fulfills that requirement, it has been successful. In
many cases, these preconditions have not been met, and the policy becomes permanent support for
specific industries.
2
Economic Council has dealt with various aspects linked to economic growth and business development in the
following policy briefs: Growth and wealth (Policy Brief 2016:1), Business terms and effectiveness (Policy Brief 2016:2)
and Experience with state-owned companies (Policy Brief 2016:3). They are all available at
http://naalakkersuisut.gl/da/Naalakkersuisut/Departementer/Finansdepartementet/Oekonomisk-raad
30
The substitution of import if not a sufficient condition for the policy having been a success. All industries
can manage with sufficiently high subsidies. If the activity does not obtain international competitiveness
without subsidies, the activity is paid by the taxpayers and/or consumers in the form of higher prices which
increase wage claims in other areas and therefore impairs the competitiveness of the country through
various channels.
Considerations for employment are often emphasized when planning the industrial policy. That applies to
e.g. the landing obligation, agricultural policy, fishing licenses etc. It is important to distinguish between
short-term and long-term effects of such initiatives. The social assessment depends on the possible,
alternative applications of the resources. If labor cannot be used for other purposed, there is an argument
to add an independent significance to employment considerations. Even though there may be few
alternative applications of labor in the short term, that does not apply in the long term - and certainly not
when education and geographical mobility is taken into account. The long-term costs of such a policy can
therefore be large as resources are tied to activities with too low a value growth. Locking in such activities
can also place the relevant persons in a vulnerable position in the future. The political risk is that you
continue to have to offer support whereby necessary structural adjustments are prevented. Support may
be reasoned where no such alternative applications exist in the short term, but support may be transitory
and with a fixed expiration date (sunset clause).
There may be geographical arguments linked to a subsidy policy. It might have an independent value that
the entire country is populated. Subsidies linked to activity or employment in a certain area may be
interpreted as an active distribution, labor market and social policy in the sense that support is through
activities and not through passive transfers. That might have an independent value and be of significance in
relation to social inheritance linked to work norms etc. just as the activity results in a production of social
value.
The agricultural policy is an example of an industrial policy where the objectives are not clear. The direct
and indirect support to 37 sheep farms constitutes3 approx. DKK 26m. Most sheep farms have a negative
operating result before subsidies, and significant debt problems and investment lags have been built up. It
is not clear whether the value growth of the industry exceeds the total direct and indirect subsidies4. The
policy aim of the industry must be clarified, and the entire policy must consequently be reassessed.
The Sustainability and Growth Plan establishes the following principles for industrial grants: they must be
for a limited period of time, and subsidies or guarantees for projects require a thorough credit rating at a
bank/credit rating agency. These are appropriate principles, and the entire industrial policy should be
investigated thoroughly with a view to establishing the direct and indirect support and subsequently be
adjusted according to these principles.
2.5. Tourism and infrastructure
Tourism is often emphasized as a potential leading industry in the future. Based on experiences of nature,
there is a huge potential. First, a barrier for the release of that potential is the infrastructure, i.e.
3
4
See the Ministry of Fisheries, Hunting and Agriculture, 2016 ESU report regarding agriculture, Nuuk.
See Copenhagen Economics, 2016, Targeted support to the Greenlandic agriculture, Copenhagen.
31
appropriate and "inexpensive" means of transportation. There is a parallel need for developing tourism
facilities and offers. The infrastructure is a special challenge as it requires large up-front investments where
profitability depends on the subsequent utilization, and these are therefore risky investments.
The means of transportation are of great significance to business opportunities and living conditions in
general. The long distances make the means of transportation critically dependent on large infrastructure
investments in harbors and airports. Air traffic constitutes a significant factor but is influenced by a
historically determined location of Atlantic airports in Kangerlussuaq and Narsarsuaq where Kangerlussuaq
currently functions as a hub for air traffic. Kangerlussuaq excels as an airport through a high degree of
regularity, but the majority of traffic is transit to other destinations in the country, and it is therefore
natural to discuss whether another structure might be more appropriate.
The transport political challenge is that there is a need for transport to many areas/destinations in the
country, but heavy, fixed costs for the construction and operations of an airport set limits for the
economically profitable solutions. Large airports allow for large airplanes and therefore also longer
traveling distances and more travelers, but it is difficult to create sufficient traffic to cover the fixed costs of
an airport and the passenger basis for large airplanes.
Lately, the airport structure has been discussed in relation to tourism and the possibilities of strengthening
this industry. A changed airport structure is therefore an important element in the National Sector Plan for
Tourism 2016-2020, see also the Sustainability and Growth Plan, see the Political and Economic Report
2016.
Inatsisartut adopted a motion for a resolution to establish the following airports:





Nuuk: Extension of the landing strip for an international airport (2,200 m strip).
Ilulissat: Extension of the landing strip for an international airport (2,200 m strip.
Qaqortoq: Construction of North Atlantic airport (1,499 m strip).
Tasiilaq: Construction of a North Atlantic airport (1,499 m strip).
Ittoqqortoormiit: Construction of a regional airport.
Concurrently, the investment need in relation to the airport in Kangerlussuaq must be assessed just as
flights to other settlements (heliports) must be assessed. Notice has been given of the preparation of a
sector plan for airports.
A Government-owned limited company – Kalaallit Airports A/S - has been established and will be in charge
of the further work with engineering studies and the entering into of agreements regarding financing the
construction of airports and landing strips in Nuuk, Qaqortoq and Ilulissat. The company together with
various partners have the possibility of being in charge of the construction of the airports in question.
The airport plans presented are ambitious, and it is highly uncertain whether the overall plan is socioeconomically appropriate and capable of being realized. The infrastructure requires large investments and
is a complex area, and thorough, socio-economical assessments are therefore important. The most recent
overall assessment is the Transportation Commission's report from 2011. It concluded that it was socioeconomically profitable to establish an Atlantic airport in Nuuk rather than in Kangerlussuaq. On that
background, it is therefore considered highly uncertain whether the overall plan with three Atlantic airports
32
is appropriate in financial terms. As a changed airport structure is a complex area and requires very large
investments, it is important with a thorough socio-economical assessment.
In the economic policy debate, see the national sector plan for tourism and the Political and Economic
Report 2016, reference is made to a report prepared by Rambøll (2015) "Tourism development and growth
through a changed airport structure". This report analyzes two scenarios for the airports in Nuuk and
Ilulissat: i) an extension of the landing strips to a length of 1,199 m, thereby the possibility of flying larger
airplanes from Kangerlussuaq, and ii) an extension of the landing strips to a length of 2,200 m, thereby also
the possibility of Atlantic flying (meaning a closing down/scaling-down of Kangerlussuaq). The report
therefore also discusses a different airport solution than the one being discussed in the above plans, and
the results can therefore not be used as the basis for a decision regarding the presented "airport package".
Furthermore, a number of questions are linked to the analysis in the Rambøll report. A decisive factor of
the impact assessment of a changed airport structure is the possible reductions in ticket prices created
through the possibilities of flying larger airplanes/more passengers. The size of the price reduction depends
on the competition on the routes, and due to limited traffic, it might be difficult to form the basis of
effective competition. Next, the price effect depends on the financing of the building of airports. The
Rambøll report assumes that the airport are fully financed by the Government (see below) and therefore
with no user fee (airport taxes are assumed to be unchanged in the analysis). However, this is contrary to
the principles of the budget act, see above, as derived income to an extent that can cover the financing of
the capital costs of the total airport package is unrealistic. To the degree that the capital expenditures must
be financed in whole or in part through user's fees, the price reductions will be smaller which will change
the expected number of passengers and therefore critical preconditions for the analysis.
The analyses are based on assumptions that particularly tourism air traffic will heavily increase through a
reduction of prices. This assumption is based on a comparison of air traffic to a number of Arctic
destinations (Svalbard, Iceland and Northern Norway) as related to the price level of travels to these
destinations and other explanatory factors. This is a very uncertain way of assessing the demand reaction
to a price reduction, and the results found are very high compared to normal practice within the area.5.
Furthermore, it could be questioned whether there is a basis for assuming that the same price sensitiveness
for tourism air traffic to e.g. Ilulissat and Nuuk exists as the first mentioned, i.a. due to the inscription on
UNESCO's World Heritage List and the climate discussion, is globally known and already an established
tourist destination. As a minimum, the analyses should also assess the consequences under other and more
moderate assumptions regarding the demand reactions to a price reduction.
The analyses disregard necessary secondary investments in e.g. terminals and other types of facilities in
order to be able to attract tourists and the requirements for the number of visitors in order to make such
facilities profitable. Especially in the Nuuk area, there will be a large need for developing such possibilities
in order to attract a larger number of tourists. This is also necessary in Ilulisssat just as there is a question
linked to the total tourism gravity in the area. A heavy increase in the number of tourists and with that the
5
Price elasticity of tourism transportation is assessed to be -3.2 per cent, i.e. a price reduction of 1 per cent will
increase demand by 3.2 per cent. In the Transport Commission (2011), price elasticity is stated to be between -0.4 and
-2.2 as the normal. Specifically speaking, the Commission assumes elasticity of -1 for tourism transportation.
Calculations are thus based on a price sensitiveness within tourism transportation which is 3 times higher than in the
Transportation Commission's analyses.
33
development within the tourism industry cannot be expected solely due to lower transportation prices but
makes a number of other demands which have not been included in the analysis.
As mentioned, the analysis presupposed full financing of the capital expenditures by the Government. That
is presupposed to be through increased taxes which are assessed to have derived, negative distortion
effects of 15 per cent of the proceeds requirement. There are several reasons that this should be assessed
to be a lower edge estimate. Already in the starting situation, there is a large and unsolved financing
problem for public finances (Government and municipalities), see section 2.2. Public financing of the capital
expenditures will further worsen this problem.
The size of the capital expenditures seems to require loan financing. In the public debate, there has been
much focus on the fact that the Government can borrow at a lower interest rate than the return
requirement that external investors make to invest money in such projects. It is correct that the
Government's general borrowing rate is lower than the typical return requirement from pension funds,
equity funds and other potential investors to invest capital in e.g. an airport project. When the
Government's interest rate is lower, it is because the Government's debt is modest by default and that the
Government is expected to always be able to pay interest and repayments through the collection of taxes
meaning that the loan carries a very low risk. However, the risk of a specific project does not disappear
through the Government's borrowing in order to finance the project. In that situation, the Government
carries the entire risk linked to whether the project will be successful or fail. A higher return requirement
from external investors may reflect the fact that they will carry the risk linked to the project, i.e. the return
requirement contains a risk premium. The return requirement must therefore be assessed in relation to the
degree of risk that the external investors will carry. A critical question therefore is how much risk the
Government wants to and can undertake, i.e. are they better at carrying the risk than the investors. There
is a clear asymmetry between good and bad outcomes for the Government as the consequences will be
obvious in situations where the projects do not go very well. If the Government carries the entire risk,
negative, financial outcomes must be covered through the general budget, i.e. through tax increases or
public sector budget cuts. It those regards, it should be mentioned that there are many models for external
capital contribution ranging from lending to various forms of partnerships (PPP constructions). The
advantage of such partnership models - in addition to the source of finance - is that expertise and
management structures can be brought into the operation of the facilities in that way. If the management
has expertise as well as capital at stake, there will be a clearer incentives structure, among other things in
relation to operations and maintenance. If the Government is the sole owner, there might be an
inappropriate structure where the management expects for the activity to be continued with the
Government's funds. However, such investments in infrastructure are of vital socio-economic importance,
and a purely private ownership is therefore also problematic which speaks in favor of carefully considering
the partnership model.
Changes in the airport structure will have derived effects on other routes and airports, e.g. through
changed points of connection which should be carefully considered. There are high fixed costs connected to
establishing airports, but the more the capacity is utilized, the lower the average costs per
airplane/traveler/cargo will be. For all airports, there currently is a very low utilization rate compared to the
maximum number of flights given the capacity of each airport. This is particularly important for Atlantic
34
airports that are more cost-consuming. Based on a socio-economical view, there will therefore be strong
arguments for only having one hub for Atlantic flights.
There therefore is a large need for a total socio-economical assessment of each airport as well as the total
airport package. The available analyses are either of an earlier date or do not assess the effects of the
entirety of the proposals presented but only parts thereof. Furthermore, the analysis must include the
consequences to the economy in Mittarfeqarfiit, the current net-controlled company running Greenland's
airports.
A special challenge for such an assessment is that the underlying data are inadequate and uncertain in
many areas. This should be carefully assessed and should be reflected in sensitivity analyses. There is a
large need for validating key assumptions as there is a risk that previous, uncertain estimates are continued
in later analyses (e.g. travelers' consumption, derived effects on other parts of the economy etc.)
35
Chapter 3 Education
Education is of great significance to the individual's possibilities in life and to development in society. It
offers the individual the possibility of making use of his or her abilities and to be self-supporting through
employment and to contribute to society. An education is the best basis for an active working life and is
therefore also of vital importance to society. High employment and income form the basis for wealth in
society and for financing the welfare society.
Many resources are spent on education, but so far, results have been too modest. There is too much of a
lag in the educational level compared to other countries. Among the young people, too many leave
elementary school with poor preconditions and motivation to continue in the educational system, and the
dropout rate in all forms of education is too large. In brief, there is a need for the educational system to "go
more kilometers to the liter".
This chapter is introduced with a review of the results achieved in the educational systems, including
educational activities among the youth and an international comparison of the educational level. Next, a
projection of the educational level with the current education program and behavior will be presented. The
chapter is rounded off with a discussion of the educational policy.
3.1
More people has an education - but still a large lag
Still more people complete an education after having left elementary school. In 2014, 15,440 persons
completed an education above elementary school level which is close to 4,000 more than in 2002. More
people completed an upper secondary education or a vocational education as more people have a
professional bachelor or a master's degree. Official statistics show that 39 per cent of the population
between 17 and 64 completed an education above elementary school level, see figure 3.1. That is 8
percentage points more than in 2002 where the measuring of the population's educational profile started.
To a certain extent, the educational level has been underestimated in the official statistics, especially for
the older part of the population. In reality, progress in the population's educational level is therefore not as
big as it appears in the official statistics and from figure 3.1. That is connected with the fact that there is not
always accurate information regarding the qualifying educations for persons who took an education before
the beginning of the 1980ies. The vast majority of the Greenlandic students' educations are registered with
the Study Grant Administration. However, in a number of educations, the students receive wages instead of
study grants during their education, and the registrations of completed educations in these areas are
therefore inadequate.
36
Figure 3.1: The population's highest completed educational level, 17-64 years old
9%
9%
10%
10%
10%
10%
10%
10%
11%
11%
11%
12%
12%
22%
22%
23%
23%
23%
23%
24%
24%
25%
25%
26%
27%
27%
69%
68%
68%
67%
67%
67%
66%
65%
64%
63%
63%
62%
61%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Folkeskole
Gymnasial og erhvervsuddannelse
Videregående uddannelse
Note: The statistical basis for assessing the educational level is inadequate for persons born before the beginning of the 1970ies.
The share of the population with elementary school as their highest, completed education is therefore overestimated in the figure
just as the decline in that share from 2002 to 2014 overestimates progress in the population's educational level.
Source: Statistics Greenland.
The achieved educational level for persons born after 1970 may offer a more accurate idea of what the
educational system has achieved through the past 12 years. It represents a vague picture of the progress.
Among people 25 to 34 years old, half of them had elementary school as their highest, completed
educational level in 2002, see figure 3.2. That is also the situation in 2014, however, there has been modest
progress for people born in Greenland. Even when taking into consideration that a certain share of the
young adults can still be undergoing education, it points to a weak benefit of the many public resources
that are spent on the educational sector.
37
Figure 3.2: Highest, completed educational level among people aged 25-34
12%
14%
14%
14%
36%
37%
36%
36%
51%
49%
50%
50%
2002
2006
2010
2014
Folkeskole
Gymnasie og erhvervsuddannelse
Videregående uddannelse
Source: Statistics Greenland.
In an international perspective, the educational level is in the low end and at the level of Turkey where half
of the young adults (25-34) have elementary school as their highest achieved educational level, see figure
3.3. Each year, OECD compares the countries' educational systems and levels in a comprehensive education
report, Education at a Glance. The highest, completed educational level among people aged 25 to 34 is a
significant factor in OECD's comparison of the countries' educational level. In average, 17 per cent of the
people aged 25 to 34 in the OECD countries have elementary school as the highest, completed educational
level. Three out of four young Icelanders took an education beyond elementary school. More than four out
of five young Norwegians, Swedes and Danes took an education beyond elementary school.
There is therefore a significant education lag compared to other wealthy countries. There is a difference
across countries in the students' average age, and it is higher in this country and in the Nordic countries
than in most other countries. However, even in an international comparison of the educational level among
the young people aged 34 to 44 - where the vast majority completed their education - the conclusion is that
there is a significant education lag.
38
Figure 3.3: The share of people aged 25-34 with elementary school as the highest educational level, 2014.
70%
60%
50%
40%
30%
20%
10%
Kina
Mexico
Tyrkiet
Grønland
Brasilien
Portugal
Spanien
Island
Italien
New Zealand
Norge
Grækenland
Sverige
Danmark
Belgien
Holland
Frankrig
Letland
UK
Australien
Luxembourg
Ungarn
Tyskland
Lithauen
Estland
USA
Østrig
Irland
Finland
Israel
Schweiz
Slovakiet
Canada
Slovenien
Polen
Tjekkiet
Rusland
Korea
0%
Note: International comparison has been made possible after Greenland is now assessing educations according to the
ISCED2011 standard. The method is available documented on the website of Statistics Greenland.
Source: Statistics Greenland and OECD, Education at a Glance 2015.
3.2
Young people and educations
A little more than 700 young people complete elementary school each year, and around 8-9 per cent of
them leave elementary school without the final examination. With no final examination from elementary
school, it is difficult for the young people to start an education afterwards. For the last decade, there has
been a steadily rising intake at the Greenlandic youth educations. Especially the upper secondary education
has grown, but the vocational educations have also increased
39
Figure 3.3a: Started and completed educations, average 2011-2015
Note: The numbers in the figure are not totaled. Number of started and completed educations include several year groups, and
each education lasts more than one year. The numbers for elementary school only apply to 2015.
Source: Statistics Greenland.
their intake, and more people have completed their education. At the same time, the dropout rate from
the youth educations has increased, and there are approximately as many who drop out of their education
as students who complete. In 2015, there were 822 interrupted educations which roughly equal half of the
educations started that same year. This means that there are many repeaters in the educational system
and that the average age for the students is high. The many interrupted educations is a problem for the
young people who risk coming to a standstill in their education or entirely fall out of the educational
system. It is also a problem to society that uses many resources on educations. The many interrupted
educations and the students' high average rate reduce the social value of educations as there will be fewer
40
years of working age in which the education will be used. The value of an education will always increase for
the individual as well as for society the more it is used.
Recent years' progress in started and completed educations must be seen in the light of the fact that the
size of the students' year groups has increased. There have simply come more students in the age group
between elementary school (around 16 years old) and mid 20ies. The number of started and completed
educations must be seen in relation to the size of the youth cohorts, see table 3.1. On that background, the
share of a youth cohort that will get a qualifying education is relatively low.
Table 3.1: The number of educations in Greenland, 2003-2015
Upper
secondary
education
Vocational
education
The
population
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Started educations
345
377
422
398
421
525
579
571
620
647
644
765
707
Active students
618
661
774
767
811
884
1005
1069
1152
1223
1214
1232
1228
Interrupted educations
185
184
167
217
174
228
234
247
240
262
320
375
365
Completed educations
154
150
142
188
203
224
224
260
297
314
333
372
346
Started educations
768
701
617
731
725
762
798
825
925
857
812
855
872
Active students
1126
1063
1090
1190
1239
1319
1294
1261
1351
1250
1200
1183
1164
Interrupted educations
447
465
334
356
370
371
482
550
460
557
475
469
457
Completed educations
374
299
256
275
306
311
341
308
375
401
387
403
434
16-19 years old
3168
3246
3476
3536
3692
3744
3571
3685
3617
3535
3378
3295
3188
20-24 years old
3743
3840
3943
4015
4022
4021
4237
4398
4524
4669
4663
4609
4497
25-29 years old
3323
3359
3430
3549
3600
3711
3822
3926
4067
4095
4134
4268
4386
Source: Statistics Greenland.
The large dropout rate at the youth educations have several reasons. For some, it is about a lack of
motivation and support. A youth education might mean that the young person will have to move to a
different town, and with the infrastructure in the country, that might be a radical change for many families.
Part of the dropout rate might be connected with subsidy schemes aimed at students - e.g. low rent at
dormitories - which might cause some to enroll without completing the education.
Other young people simply lack the academic basis to complete a youth education. In 2015 and 2016, the
Danish Evaluation Institute published two very critical reports regarding the Greenlandic elementary school
and the teacher training program, respectively. In general, elementary school is assessed to work poorly,
and the teacher training program has a number of serious challenges regarding quality. A poorly
functioning elementary school with quality issues in its teaching will necessary leave its mark on the youth
cohorts who will proceed in the educational system.
41
The annual proficiency tests in elementary school might give an indication of the students' academic level
and development of skills. Inerisaavik publishes the results of the proficiency tests that have been held
since 2006. That makes it possible to follow the development of the test results. Note that the actual level
of the proficiency tests - especially the certainty in answering for each subject and at each grade - is difficult
to assess as no performance scale has been developed for the tests. However, the proficiency tests allow
for comparisons of the academic level at elementary schools across the country, genders, settlements etc.
The tests also show the difference between students. Among other things, it was found in the Proficiency
Test 2015 that a number of students lose already acquired knowledge and skills from the earliest and the
intermediate stage when they reach the later stage. There is a relatively high degree of dynamics among
students from the 3rd to the 7th grade in all subjects, but there is a tendency of the picture "freezing" from
7th to 10th grade where the students seem to retain their relative placement as "good", "average" or
"weak" students.
Generally speaking, the test results were rather stable and with few deviations. Generally speaking, the
academic level in each subject and at each grade remained unchanged in those years where the tests were
made. On that background, there does not seem to have been an academic boost at elementary school
since mid 00ies.
Tests are an informative tool to assess the effect of elementary school, and the introduction of the
proficiency tests has had good results. The benefit of the proficiency tests can be strengthened if a
performance scale is developed for the proficiency tests, especially with respect to the certainty in
answering. The certainty in answering is the share of right answers in the test in a subject. Is e.g. an average
certainty in answering of 50 per cent in math in 7th grade satisfactory in relation to the learning objects at
elementary school in that subject? In the proficiency tests for 2015, the certainty in answering in math is 49
per cent in 7th grade - meaning that a little more than half of the assignments were not answered correctly
- and there is a rather large group of students who have a very low certainty of solution. The same image is
the case in the subjects Greenlandic, Danish and English. Subject to the fact that it is difficult to link the
proficiency test results and the quality of the education, the proficiency tests seem to indicate that many
students will leave elementary school with a weak, academic ballast.
With regard to further education after elementary school, it is important that the young person starts a
youth education before too much time has passed. If too much time passes, the likelihood of the young
person getting a qualifying education will drop. Unfortunately, that is too often the case for Greenlandic
young people.
A much too small share of the youth cohort are active students, see table 3.2. The year group of 18-year
olds had 812 persons in 2015 of which only 277 were active students at youth educations.
Among the students graduating from elementary school in 2015, only 208 students6 passed all subjects. The
other students got at least one failing grade, or there were subjects for which they did not take the exam.
6
The Ministry of Education, Culture, Research and Church etc.: Draft to the report "Elementary school by detours".
42
Graduate students who do not pass all final examinations at elementary school might be admitted at a
youth education through dispensation or by passing an admission test. However, the elementary school
grades should still be considered a significant cause to the fact that only approx. 14 per cent of the
elementary school year group started a youth education the same year as they started elementary school.
43
Table 3.2: Course of youth educations in Greenland among 15-25-year olds, 2015
Age
15
16
17
18
19
20
21
22
23
24
25
776
635
880
812
861
873
916
910
884
914
917
Started educations
31
134
138
79
45
41
23
25
20
19
28
Active students
Interrupted educations
Completed educations
2
4
0
72
26
1
217
66
0
230
45
23
174
45
74
117
32
68
69
16
38
44
25
19
46
15
17
50
10
17
39
15
11
Started educations
3
14
46
52
54
53
72
55
44
40
66
Active students
Interrupted educations
Completed educations
0
0
0
6
5
0
21
13
5
47
27
5
47
37
10
65
29
24
72
46
32
87
33
34
96
21
33
60
30
40
80
18
36
Total year group
Upper secondary
education
Vocational
education
Source: Statistics Greenland.
Since the beginning of the extraordinary education program in 2016, more funds have gradually been
allocated to transition programs and labor market courses. The increased appropriations are meant to
ensure that persons with insufficient, academic knowledge from elementary school get help to being
employed or to continue in the educational system. In 2015, more than DKK 100m were spent on
continuation schools and Upskilling and guidance at the regional Majoriaq (Job, Guidance and Upskilling
Centers)
The educations that have focus on transition programs between elementary school and youth educations
are continuation schools in Denmark as well as Greenland and education programs aimed at the final
examination from elementary school and recognized vocational education introduction at Majoriaq. In
2015, 949 students started the above transition programs, more than half of which started the recognized
vocational education introduction where the academic level is lower than the graduation class from
elementary school.
The transition programs have a varying degree of success in bringing the students on in the educational
system. From the final examination from elementary school and the continuation schools, 70 % and 50 % of
the students, respectively, continue in the educational system within one year after the transition program,
most of which start upper-secondary school. For the recognized vocational education introduction aiming
at the vocational educations, the number is 30 %.
An improvement in the quality of elementary schools involved a significant efficiency potential in the
further educational system. A scenario could be that the transition programs are aimed at 25 % of a year
group with special challenges, that no one takes more than one youth education and that the completion
rates at youth educations have increased to 75 %. In the long term, the above scenario makes it possible for
44
the intake to be reduced by 70 % for transition programs and by more than 40 % at the youth educations
which result in efficiency gains which can be prioritized for other purposes.
That can strengthen the planning of transition courses and youth educations if the registrations of
elementary school students as well as participants at upskilling courses at Majoriaq and other transition
programs are improved. An important basis for the future educational planning is statistics based on
information at person level from all places of education with which the people are in contact through their
education. It is unsatisfactory that large amounts in the million range are spent on transition programs
without any subsequent qualified assessments of the effects of the programs through the educational
system.
Only every third 18-year old has thus started a youth education at the upper secondary school or at a
vocational education. The part of the youth cohorts with active studying is about 25 per cent, see figure
3.5. The ambition that 70 per cent of a youth cohort should take an education above elementary school
level when they are 35 years old can be fulfilled by the current education program.
Figure 3.5: Active students at the youth and higher educations, share of year group in 2014.
40%
35%
30%
25%
20%
15%
10%
5%
0%
17
18
19
20
21
22
23
24
25
26-27
28-29
Alder
Note: The share has been calculated including active students in Denmark and abroad.
Source: Statistics Greenland.
In an international comparison of the share of the youth who is actively studying, the share is very low, see
figure 3.6, especially among the very young people who just left elementary school. That seems to indicate
a functional error in the transition from elementary school to the youth educations in the educational
system.
45
Figure 3.6: Share of the youth cohort who is actively studying, elected countries, 2013
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Grønland
Mexico
Barsilien
Tyrkiet
Canada
Italien
Luxembourg
UK
Østrig
USA
Australien
New Zealand
Tyskland
Portugal
Spanien
Frankrig
Danmark
Slovakiet
Rusland
Schweiz
Sverige
Finland
Estland
Norge
Holland
Korea
Ungard
Island
Belgien
Polen
Tjekkiet
Letland
Slovenien
Irland
0%
17 til 19-årige
20 til 29-årige
Note: Youth educations and higher educations.
Source: Statistics Greenland and OECD, Education at a Glance 2015.
Part of the young people not actively studying can be employed and through that obtain useful
competencies. In 2015, there was a total of 8,921 young people between 16 and 25 of which 2,988 were
employed and 2,797 were studying. The others - the youth target group - constituted 3,126 young people
who were neither employed nor studying. 35 % of the age group aged 16-25 were neither studying nor
employed. Among the 17-year olds, the youth target group constitutes e.g. 425 young people out of a year
group of a total of 880 persons. If you compute the youth target group according to age and completed
education, the conclusion is that even among 25-year olds, more than 20 per cent of the year group in the
youth target group have no other education than elementary school, see figure 3.7.
It is a serious social problem that around half of the 16-18-year olds, the youth target group, are neither
studying nor employed. The objective in the Sustainability and Growth Plan that the youth target group
should be reduced to max. 25 per cent of the 16-18-year olds in 2014 is not sufficiently ambitious. It must
be ensured that there is sufficient capacity in the educational system to get the young people started after
elementary school. Many in that group are ready for education, but the lack of traineeships,
apprenticeships, school-based practical training, education facilities, dormitories etc. means that they will
not get started. That increases the risk of their coming to a standstill so that they will not get started with
an education. Many people are therefore well on in years before they start and complete their education.
The capacity and intake in the upper secondary school program have increased significantly over a number
of years. However, there has been a decline in student numbers at the vocational educations. At the same
time, there are few educated people in industries where there is a lack of labor with qualifying educations
(the building and construction sector and fisheries).
46
Figure 3.7: The youth target group distributed on age and completed education, 2015
450
400
350
300
250
200
150
100
50
0
16 år
17 år
18 år
19 år
20 år
Uden afsluttet uddannelse
21 år
22 år
23 år
24 år
25 år
Med afsluttet uddannelse
Source: Statistics Greenland.
Many resources are already being spent on the educational system. Around a fifth of the public budgets
goes to education which is a very high rate in an international perspective, see figure 3.8. Considering the
large challenges, there is first and foremost a need for the resources to be prioritized where they are the
most beneficial. More funds for education will in itself not eliminate the large challenges.
Figure 3.8: Share of public finances for education, 2012.
25,0%
20,0%
15,0%
10,0%
5,0%
Grønland
Mexico
New Zealand
Brasilien
Chile
Schweiz
Korea
Irland
Norge
Island
Australien
Israel
Danmark
Canada
UK
Sverige
USA
Estland
Finland
Belgien
Holland
Polen
Slovenien
Tyskland
Portugal
Østrig
Slovakiet
Tjekkiet
Frankrig
Japan
Luxembourg
Spanien
Ungarn
Italien
0,0%
Note: 2012 or later years. For the sake of the international comparability, the share has been calculated based on the
national accounts information and may therefore deviate from the same share calculated based on accounting
information. International comparisons are difficult as parts of the education costs are privately financed in a number
of countries, especially the Anglo-Saxon countries.
Source: Statistics Greenland and OECD, Education at a Glance 2015.
47
3.3
Slowly advancing educational level up until 2040
A good education is the best foundation for employment and financially independence and with that for
the wealth of the entire society. The long-term development in the educational level is therefore an
important guide for the long-term, economic development. This section describes a model which makes it
possible to project the population's highest, completed educational level based on the educational
behavior and the population projection.
This is the first time that there is a projection of the educational level in Greenland. The aim of the
projection is being able to project the educational level based on the current educational behavior as well
as being able to analyze how changes in the educational behavior and system might influence the
educational level in 10-20 years - e.g. the effect of large intakes, less dropouts and more students
completing their education.
The educational model described is based on the current, average educational behavior in Greenland7. The
model is based on a number of general assumptions of the behavior in the educational system. An actual
microsimulation model in which each individual's educational behavior is described and stimulated will be
more capable of projecting the educational level. It will also be easier to analyze the effect of the behavior
and the educational system in a microsimulation model. With that, the development of such a model for
the Greenlandic educational system will be an important analytical tool in the education policy. The
projection of the education model shows how the educational level is changed as new generations replace
old generations. As new generations have a higher educational level than old generations, the result will
necessarily be a gradually higher education level in society. This well-known effect will be significant
despite of a relatively low educational performance among young generations.
In figure 3.9, the projection of the entire educational level is shown for the entire population up until 2040.
The share of the population (aged 16-64) with elementary school as their highest, completed educational
level dropped from 62 per cent in 2015 to 51 per cent in 2040. Especially the vocational educations and the
profession-specific educations will advance. The educational level steadily moves upwards, but there will
also be a large lag to the educational result in other western high income countries in 2040.
Significant progress in the educational level will require the young people to get an education to a much
greater extent than today. In this case, Iceland could be taken into consideration where 36 per cent of the
Icelanders who are 35 have a youth education as their highest, completed educational level, and 42 per
cent have a further education. 22 per cent have elementary school as their highest, completed educational
level, see OECD Education at a Glance 2015.
7
The model for projection of the educational level has been described in the technical background report, Projection
of educational level, 2-2016, which is available on the Economic Council's website.
48
Figure 3.9: Projection of educational level based on unchanged educational behavior
Folkeskolen
Gymnasie- og erhvervsuddannelser
Videregående uddannelser
12%
13%
14%
15%
17%
17%
26%
28%
30%
31%
32%
32%
62%
59%
56%
53%
52%
51%
2015
2020
2025
2030
2035
2040
Source: Statistics Greenland and own calculations.
In figure 3.9, the educational level in Greenland has been projected in the case where young people in
Greenland achieve the same educational level as the young people in Iceland today. The figure shows that
it must necessarily take a long time to catch up with the education lag to other rich, western countries. That
also emphasizes the significance of a long-term, persistent education policy aimed at strengthening the
competencies of society.
Figure 3.9: Projection of educational level - provided that young people in Greenland obtains the same
educational level as in Iceland.
Folkeskolen
12%
26%
62%
2015
Gymnasie- og erhvervsuddannelser
15%
Videregående uddannelser
17%
19%
20%
20%
34%
36%
37%
36%
54%
49%
45%
43%
43%
2020
2025
2030
2035
2040
31%
Source: Statistics Greenland and own calculations.
49
3.4
Education policy
Challenges within the educational sector are well-known and concern the level as well as the quality of
education. Many resources are spent on education, and yet many do not get an education, and not enough
get very far in the educational system. There are many explanatory factors behind these facts, but fact is
that there is a huge education lag. The possibilities for developing a basis for trade and industry, increasing
employment and achieving an equal income distribution and wealth and improvements of public finances
are curbed by an insufficient level of education.
There is a large need for political responsibility and initiative to be taken in order to change the situation.
Education is society's central point and is an important prerequisite to ensure a broad business basis and
sustainable, public finances - the process towards a self-sustaining economy requires significant
improvements in the educational area. Education is also important of many other reasons, among other
things culture and democracy, just like the value for the individual in relation to realizing abilities,
motivation and interests.
Through the years, many initiatives have been taken, but in spite of that, development has not been
satisfactory. Ambitions have were high, e.g. Atuarfitsialak, but the results were not satisfactory.
Many goals for the education policy has been drawn up - most recently in the form of the Education
Strategy from 2015 and the educational-political objectives in the Sustainability and Growth Plan. Having
such goals is important. The prerequisite of being able to change the situation is a clear assignment of
responsibilities. Who will follow up on the development, and who has the responsibility? It is necessary to
rethink the education policy based on current conditions and the realistic possibilities.
It does not come under the frames of this chapter to offer detailed, educational-political suggestions, but a
point is that the debate should not be lost in details regarding individual aspects of the educational system.
Changes in the area depends as much on a change of attitude with clear backing and support to education
and teaching at all levels.
The educational-political dilemma is that there is a need for action in several areas, the elementary school,
young people etc. All areas are important, but the elementary school will have to be emphasized in this
order of priorities. If there are no significant improvements within the elementary school, there will be no
significant changes within the educational sector, and too many resources will be spent on fixing problems
that are due to an inadequate learning level in the elementary school.
First and foremost, a solution to the education problem requires significant improvements at elementary
school. More people should obtain skills and motivation which can carry them forward in the educational
system. The allocation of responsibilities is clear in this area. The school management and the teachers
have the educational competencies and therefore also the responsibility for the results of the school, and
the municipal council must keep the school management responsible. A higher degree of openness and
transparency regarding the performance of each school would be a good tool. For example, the individual
elementary schools should document achieved results for the students' proficiency tests and final exams
50
and also the class hours, absence due to illness and substitute hours. Several young people who continue
in the educational system do not only make demands on the elementary school in relation to learning
targets, teaching methods, management etc. but as much to parental involvement and backing. It is
positive that plans of action are now being prepared for all elementary school students when they leave
elementary school. However, this happens so late in the elementary school program that the possibility of
setting out on a new course does not exist, and to a certain extent, the elementary school is relieved of
responsibility.
In the finance bill for 2017, no significant changes or a change in the order of priorities for the
appropriations within the educational sector are contemplated. Instead, a review of the Primary Education
Act will be initiated and is expected tabled in EM2017. This means that at least one year will pass until a
new Primary Education Act will be adopted, and even more years will pass until the changes can be
implemented at the individual schools.
The education policy should be prioritized on the political agenda. It is important that a future revision will
not curb the initiatives that have already been considered to get more young people started on an
education after elementary school. That might for example be continuation schools or a compulsory 11th
grade program for young people who do not continue in the educational system after completed
elementary school.
Concurrently with a future revision of the Primary Education Act, there must be the latitude to implement
plans of action that can break the vicious cycle in which too many young people do not proceed after
elementary school. Several years with status quo in elementary school mean more youth cohorts that will
get a wrong start in qualifying educations. The problems are well-known and well-described, for example in
the two very critical evaluation reports on the elementary school in 2015 and the teacher training program
in 2016. Specific initiatives and steps should be taken as soon as possible.
51
Publications from the Economic Council
The material is available at:
http://naalakkersuisut.gl/da/Naalakkersuisut/Departementer/Finansdepartementet/Oekonomisk-raad
Reports:
Economic Council Report, 2010
Economic Council Report, 2011
Economic Council Report, 2012, Natural resources as a growth strategy
Economic Council Report, 2013, Economic outlook, public finances and migration
Economic Council Report, 2014, Economic outlook, current economic policy and housing
Economic Council Report, 2015, Economic outlook, current economic policy and Population trends
and regional policy
Economic Council Report, 2016, Economic outlook, current economic policy and education
Background material:
Technical background memo 2014-1: The settlements in a socio-economic light
Technical background memo 2014-2: Demography and housing requirements towards 2040
Technical background memo 2014-3: Updating of calculation of fiscal sustainability 2014
Technical background memo 2015-1: Fiscal sustainability 2015
Technical background memo 2015-2: Public economy – DAU and public finances
Technical background memo 2015-3: Reforms in the pension area – anticipatory pension and retirement
pension
Technical background memo 2015-4: Technical memo on demography calculations
Policy Briefs:
Policy Brief 2016:1
Growth and wealth
Policy Brief 2016:2
Business terms and effectiveness
Policy Brief 2016:3
Experience with state-owned companies
Policy Brief 2016:4
economy
The potential significance of the extraction of raw materials for Greenland's
52